BP oil slick demonstrates the dangers of outsourcing and cloud to CIOs

Some business critical services can be more safely outsourced than others

Taking a look at business technology leadership from the perspective of having been an entrepreneur technology start-up, Mike Altendorf analyses the business skills required and what’s new and exciting in technology.

July 1, 2010

CIO
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You have to pity the Tony Hayward, CEO of BP. As Stefan Stern points out in a recent article for the FT he has just been taught a terrible lesson in the perils of outsourcing. Watching him standing on the shoreline with that rather desperate expression on his face I imagine him to be reliving that fateful conversation in which he was convinced that letting someone else handle rig operation and maintenance would be good for ‘efficiency’ and ‘cost reduction’. The bright spark who came up with that idea has probably long gone… what a legacy to leave behind.

Not that there is anything wrong with outsourcing. But if it could lead to a 30 per cent reduction in your share price then you need to think long and hard about it.

Essentially there are two forms of outsourcing. Firstly, there is the non-business critical support functions - relatively low risk and often less need for the business to retain control. Secondly, there is outsourcing that which is too difficult or costly to do in-house. It’s in the latter that the danger lies because all too often outsourcing equals loss of control and when that happens your ability to respond should something go wrong is – as Mr Hayward is now all too aware – severely impaired.

When it comes to IT the rules are no different. Plus now you have the cloud in play. With many of the models currently out there cloud IS outsourcing and don’t be fooled – the risks are exactly the same. There is no doubting however that service levels have improved and service providers of all flavours now understand better the difference between providing a solution and providing a service. This means that some business critical services can be more safely outsourced to (as the old saying goes) ‘reduce cost and improve efficiency’.

Take email for example. Critical? Yes. Complex? Not really. A decent email management provider will probably improve reliability, security and up time and if the worst comes to the worse there are always back-up solutions like Google and Hotmail (and picking up the phone from time to time never hurt anyone – in fact its probably something we should all do a little more often).

Email is effectively a utility these days and this can be said for a growing number of IT services. They now fall into the first category of what can be outsourced. To use the old analogy, you wouldn’t want to provide your own gas and electricity. However there are also a growing number of services that are actually increasing in complexity and, as the way we access technology and interact with it becomes more complex, finding the correct provisioning model is difficult.

This is partly driven be the rise in what can loosely be described as ‘self service’. What I mean by that is today’s user increasingly expects the same level of control over their IT environment at work as they do at home. Information, applications and analytics are increasingly being delivered through tailored portals that in many ways mirror the social media aggregator sites – bringing everything together in one place.

Users expect to be able to update, change and configure these portals in real time and demand scale and performance that mirrors that of the internet. This then requires a background IT infrastructure and application architecture that is flexible to expand and contract as and when required. Not only that but it has to be manageable and secure.

Take for example a fictional sales director – let’s call him Dan. He spends 70 per cent of his working life on the move. He never goes anywhere without his laptop and his Smartphone and increasingly he expects to be able to access what he wants through either device.

In any given day he will be accessing email, opening, reviewing and editing all sorts of documents, inputting expenses, updating the sales tracker as well accessing different social media apps and showing demos and presentations via tools such as WebEx. What he doesn’t want is to have to go into each separate service independently each time he uses it. He wants it all in one place, one single window which provides what he wants, when he needs it.

Look at today’s successful businesses and you might have 50 or 5,000 people all wanting their own, personally configured window. They will expect to be able to add and remove services whenever they want and they don’t want to have to send an email to India and then wait five weeks in order to do it. Delivering this sort of service is not about outsourcing. No company in its right mind would expect to be able to outsource this lock, stock and barrel and get either the service they want or the price they can afford. And who would want to? If a CIO gives up control of something this critical then pretty soon they will be looking at their own version of the BP oil slick.

This is where the more sophisticated cloud models come into play. A mixture of internal control with the flexibility and functionality provided by the cloud. A scalable infrastructure that can expand and contract according to your needs, web based applications that can respond in real time and customisable portals designed for user control. Cloud is not about outsourcing. It’s about clever sourcing.